The COVID lockdown has prompted all sorts of property movements from upgrades with adequate home office spaces, to downsizing Melbourne mortgages and everything in between. Each of them come with a range timing issues, but here’s some lesser known tips that you’ll need to know where a lender is involved.
1. Fixed Rate Mortgages incur Break Costs, regardless of the reason
Despite some misconceptions, mainly due to different rules overseas, break fees are break fees, and will be triggered whether it is due to a loan change, or a payout of the loan.
2. The New Mortgage is Assessed on Point in Time data
Regardless of the size of the current mortgage that is being comfortably serviced, a lender will assess current income based on the rules of the day. This includes minimum 2 years’ consistent history for self-employed, and the complexities that come with disrupted incomes during Covid-19.
3. Bridging Finance can help to manage the transition
Bridging Finance can help to avoid 2 moves and rental costs. Typically you’ll have 12 months to sell, but the lender will factor the risk of having to sell the property for less than its true value. However the affordability of the loan is calculated on an “end debt” position. Where the end debt will be $0, there is no assessment of income.
4. Long Settlements can help to avoid Bridging Finance
The best case scenario for a purchase that is dependent on another property sale is a long settlement. Then, if required, a Bridging Loan can assist to only manage the time between a purchase settlement, and the funds being available from the sale of the current home.
5. The Current Home may be able to become an Investment Property
A popular option is to purchase a new home, and assume that if the current home doesn’t sell for an appropriate price in time, then it becomes a rental property. The benefit is that the lenders will factor the future rent of the former home in determining loan affordability.
However unless income is particularly strong, this strategy can prove to be more difficult than first thought. The most common assumption is that the investment property will simply go onto interest only repayments over the short term. However, the lenders’ assessment involves determining whether household income (including small business profits and net rental income) can service 2 Principal & Interest Loans over 30 years (or less if retirement age is more imminent).
Each of these strategies can be somewhat complicated, so independent advice is best sought before the shopping begins.
For more tips & advice, contact Lanie Conquest or Nicola Tucker at Surf Coast Finance
With over 40 years combined banking & financial services experience, they help local families & businesses make smart financing decisions.
Ph: 03 5264 7702